June 3, 2010 (FinancialWire) — China INSOnline Corp. (NASDAQ: CHIO) said it plans to aggressively combat naked short selling of the company's common stock.

Naked short selling is the practice of short-selling a financial instrument without first borrowing the security or ensuring that the security can be borrowed, as is conventionally done in a short sale.

When the seller does not obtain the shares within the required time frame, the result is known as a "fail to deliver".

The transaction generally remains open until the shares are acquired by the seller, or the seller's broker, allowing the trade to be settled.

The practice can be illegally used to fraudulently manipulate the price of securities by driving their price down.

The company said that had suspicions that its stock was being traded in this manner, and had those suspicions confirmed when NASDAQ OMX published the results on a short list under the regulation SHO Threshold Security List. China INSOnline was listed as a company suspected of being the victim of naked short selling.

A company makes the list when there are aggregate fails to deliver at a registered clearing agency of 10,000 shares or more per security, the level of fails is equal to at least one-half of one percent of the issuer’s total shares outstanding and the security is included on a list published by a self-regulatory organization.

China INSOnline said it has had discussions with securities council regarding the pursuit of civil action against the market participants engaged in the naked short selling in question for stock manipulation.

The company said it has also notified NASD and NASDAQ OMX about the situation. China INSOnline, which is incorporated in Delaware and headquartered in Beijing, is a licensed insurance agency in China. Representing major insurance underwriting firms in China, the company offers online automobile, property and life insurance services through its industry web portal.

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